Based on corporate investment theory, using a sample of manufacturing firms listed on the Shanghai and Shenzhen A-share markets in China from 2010 to 2022, this study explores the impact of over-indebtedness on the financial asset investments of these firms. The findings reveal that over-indebtedness drives financial asset investments in manufacturing firms by increasing financing constraints and intensifying principal-agent conflicts. From the perspective of investment motivation, profit-seeking is identified as the primary motive behind over-indebtedness-driven financial asset investments. In terms of investment efficiency, such investments are found to be inefficient and exhibit a trend of over-investment, which to some extent indicates a tendency for manufacturing firms to “shift from the real economy to the virtual economy”. Heterogeneity analysis shows that the promoting effect of over-indebtedness on financial asset investments in manufacturing firms is more pronounced under conditions of weak external audit supervision, greater distortion in factor markets, lower cost pass-through capabilities, and smaller macroeconomic fluctuations.